The History of Bitcoin

February 7, 2020

Bitcoin has a nuanced and fascinating history derived from cypherpunk roots. Cypherpunks were technologically savvy libertarians that prophetically realized the potential of cryptography in defending against digital surveillance by governments and corporations back in the early 1990s.

Cypherpunks swapped ideas and early iterations of digital currencies through obscure mailing lists. These secretive circles of computer programmers and idealists produced early digital currencies like E-Gold, B-Money, and B-Gold -- designed by eminent cryptographists like David Chaum, Wei Dai, and Nick Szabo.

But all of these young “cryptocurrencies” failed in one critical aspect: they could not solve the double-spend problem without a central clearinghouse. The double-spend problem is the hurdle of settling a transaction between two counterparties without a transaction being duplicated or falsified. It was the fatal flaw of early bitcoin predecessors, who could not come to a consensus on the state of the digital currency’s ledger without using a central clearinghouse model similar to banking.

This resulted in many of the original cryptocurrencies, most notably E-Gold, being shuttered because they required centralized servers to reconcile the ledger of transactions, making them entities vulnerable to government regulation.

The question soon became:

How can you create a decentralized cryptocurrency that doesn’t require a trusted (centralized) third party to verify the state of the ledger?

Enter Satoshi Nakamoto.

Early Days & Overcoming Misperceptions

At the height of the 2008 Financial Crisis, an anonymous figure going by the pseudonym Satoshi Nakamoto, delivered a paper to the cypherpunk mailing list titled:

Bitcoin: A Peer-to-Peer Electronic Cash System”

It later became recognized as the legendary whitepaper that launched Bitcoin and the broader cryptocurrency and blockchain industry. On January 3rd, 2009, Bitcoin officially went live when Satoshi mined the Genesis block, the first block in the Bitcoin blockchain, imbuing the message below, citing the ongoing financial crisis into its data:

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”

Over the next couple of years, intrigue among some cypherpunks coincided with extensive emails, forum posts, and more (all documented on the Nakamoto Institute) examining Bitcoin’s validity and how to improve the network. Bitcoin soon received its first symbolism of intrinsic value when Laszlo Hanyecz paid 10k bitcoins for two pizzas in what is now known as Bitcoin Pizza Day.

Around the same time, Satoshi, Hal Finney, and several other developers, were working to  incrementally improve Bitcoin and expand its community before Satoshi vanished entirely in April 2011.

Bitcoin’s small community of proponents took over the reins and the network quietly churned along without much mainstream attention until the FBI busted the Silk Road in October 2013. The incident put Bitcoin on the mainstream media in a morose light. Calls of “bitcoin is dead” coincided with an extended bear market for the cryptocurrency’s price, but positive signs were emerging nevertheless.

Early payment processors like BitInstant and exchanges like Mt. Gox emerged, initiating the first market structure for a looming alternative currency market. Unfortunately, Mt. Gox was hacked in 2014 to the tune of 744k bitcoins, miring the young cryptocurrency into further bad publicity.

Bitcoin was painted in a negative light by observers, but there was more than meets the eye going on behind the scenes.

First Slowly, Then All of a Sudden

By late 2015, prominent Bitcoin exchanges like Coinbase and BitStamp were chugging along and government recognition of Bitcoin as money was happening in countries like Japan.

Interest in Bitcoin and crypto hit a mania in late 2017 following the 2016 launch of Ethereum and the start of Initial Coin Offerings (ICOs) for the litany of altcoins that would soon emerge. Bitcoin’s price soared to $20k throughout the Fall of 2017.

It had gone viral and became mainstream.

The 2018 bear market was the natural price correction from such a meteoric rise but saw the birth of Bitcoin’s second layer, the Lightning Network (LN), and the introduction of financial institutions to the wild world of cryptocurrencies. The LN has continued to balloon at a rapid pace while institutional investment, development, and intrigue into Bitcoin has surged in parallel.

Throughout 2019, VC-funded startups announced products and strategies pioneering the foray into a new digital age of money that was envisioned in a mailing list whitepaper only a decade ago. Significant strides have been made in accessing Bitcoin (including services like Change), improving the protocol (e.g., SegWit), and educating the broader public on Bitcoin’s value as a censorship-resistant, global currency.

Which brings us to today.

Looking back on the history of Bitcoin’s humble origins marks a decidedly different era than the waterfall of enthusiasm that has gripped the financial world today. We enter 2020 and the new decade with a bright future for Bitcoin and significant work ahead to continue its legacy as the flagbearer of disruptive technologies in finance, privacy, and global financial inclusion.

From cypherpunk fantasies to the distinguished alternative to the fiat hegemony, Bitcoin’s history is remarkable.

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